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Raising Capital through Crowd Funding

From April 2014, as a result of the Financial Markets Conduct Act 2013, NZ companies will be able to raise capital via crowd funding platforms without needing to comply with the extensive and somewhat onerous disclosure requirements of the Securities Act 1978.

What is Crowd Funding?

Crowd funding is usually facilitated through an online platform where a large number of individuals can make small - medium contributions of money in return for an equity investment, such as shares.

Crowd funding platforms have been popular recently for fundraising projects (e.g the next America's Cup Campaign) but because of the current securities law, they have only been able to be used to receive donations, where the individual has no expectation of any kind of economic return.

The Exemption

The crowd funding exemption will allow NZ companies to raise up to $2million over a 12 month period using a crowd funding platform.

It is likely Regulations will impose a cap on how much money any one individual can invest and this is currently subject to consultation.

The crowd funding platform itself will need to be run by a financial service provider licenced by the Financial Markets Authority.

While the new exemption does not give NZ companies the freedom to jump online and set up a funding website at will, it does nevertheless increase the options available to NZ businesses to raise capital without being subject to the extensive and often costly disclosure requirements currently imposed by the Securities Act.

Keep a look out for further blog updates on crowd funding and the other new capital raising options to come into effect from April this year.

Written by Kylie van Heerden at 09:00

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